The Massive Costs of the Latest Obamacare Waiver

Policymakers are still recovering from yesterday’s shocking admission by the Administration that it can’t implement Obamacare’s employer mandate without destroying jobs.

The announced one-year delay in enforcement brings with it an immediate revenue loss. But by further encouraging firms to drop coverage now—allowing businesses to privatize gains and socialize losses—the change could cause federal spending on Obamacare exchange subsidies to soar.

The Congressional Budget Office (CBO) estimated in May that the employer mandate would raise $10 billion in revenue in its first year. (Because the employer mandate is a tax penalty, firms will pay the penalties the following year—penalties for 2014 will be paid in 2015; penalties for 2015 will be paid in 2016, etc.) That $10 billion in employer mandate revenue projected for fiscal year 2015 will almost certainly disappear.

Then there’s the separate question of whether, when, and how employers will drop their health insurance plans and dump their workers on the exchanges. Here’s what we know on that front:

In its most recent economic forecasts in February, the CBO estimated that unemployment would average 7.8 percent in 2014. That number is nearly three percentage points higher than the CBO’s estimate of 2014 unemployment at the time of Obamacare’s passage. Because unemployment will be higher than the CBO first projected when Obamacare passed, firms will have more incentive to drop health insurance now, while labor markets are more competitive and workers have fewer employment options.

The CBO now projects that, if firms do drop health coverage, insurance subsidies on exchanges will average $5,290 per enrollee next year. By comparison, shortly after Obamacare passed, the CBO projected subsidies would average $3,970 in 2014. In other words, the projected average subsidy for 2014 has grown by one-third since the law passed.

As we documented last week, since Obamacare’s enactment, the CBO has increased the number of projected uninsured and decreased the number of individuals projected to retain their employer coverage.

Is the penalty more than the [cost of] insurance?… Is there a consequence other than a fine or shame—cause I know the shame thing’s not gonna work.

Instead of facing a decision to pay more than $10,000 for a worker’s insurance policy or pay a $2,000 per-employee penalty, employers next year will now be able to raise their workers’ wages to compensate them for the loss of their health plans. And the cost of that choice—which some would argue is so obvious as to not be a choice—could result in skyrocketing federal spending.

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